Cray Communications, Inc. v. Novatel Computer Systems, Inc.

• Decision Date: 31 August 1994
• Docket Number: No. 93-2413,93-2413
• Citation: 33 F.3d 390
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: CRAY COMMUNICATIONS, INC., formerly known as Dowty Communications, Incorporated, Plaintiff-Appellee, v. NOVATEL COMPUTER SYSTEMS, INC., Defendant-Appellant.

Page 390

33 F.3d 390

30 Fed.R.Serv.3d 233

CRAY COMMUNICATIONS, INC., formerly known as Dowty Communications, Incorporated, Plaintiff-Appellee, v. NOVATEL COMPUTER SYSTEMS, INC., Defendant-Appellant.

No. 93-2413.

United States Court of Appeals Fourth Circuit.

Argued May 12, 1994.

Decided Aug. 31, 1994.

ARGUED: William Norman Rogers, Rockville, MD, for appellant. Eric Alan Deutsch, Testa, Hurwitz & Thibeault, Boston, MA, for appellee. ON BRIEF: Thomas M. Goss, Goodell, Devries, Leech & Gray, Baltimore, MD, for appellee.

Before MURNAGHAN and NIEMEYER, Circuit Judges, and ERWIN, Senior United States District Judge for the Middle District of North Carolina, sitting by designation.

Affirmed by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge NIEMEYER and Senior District Judge ERWIN joined.

OPINION

MURNAGHAN, Circuit Judge:

Appellee, Dowty Communications, Inc. ("Dowty"), now known as Cray Communications, Inc., brought a diversity action, sounding in contract, against appellant Novatel Computer Systems, Inc. ("Novatel"). Novatel counterclaimed, alleging fraud and breach of contract. Dowty moved for partial summary judgment on Novatel's counterclaims. The district court granted Dowty's motion, dismissed Novatel's fraud counterclaim for lack of evidentiary support, and limited any potential recovery on Novatel's contract counterclaim to those remedies expressly provided for in the parties' contract. Novatel moved for permission to supplement the record and for reconsideration. The district court denied Novatel's motion, and Novatel appealed.

I

Dowty designs, manufactures, sells, and supports telecommunications equipment. Novatel, among other things, sold communications equipment to "end users." Dowty and Novatel entered into a Master Distributor Agreement ("the Agreement"), under which Novatel became a non-exclusive distributor of a Dowty product known as the "Series DCP9506 T-1 network access multiplexers." Novatel intended to purchase the multiplexers from Dowty and then distribute them to end users under the Novatel logo and name.

In the Agreement, Dowty warranted that its products and repair work would be free from defects in material and workmanship for a specified period. Dowty made no other warranties, express or implied. Novatel and Dowty also agreed to limit Dowty's liability: the Agreement expressly restricted Novatel's remedies to the repair or replacement of defective products or to a refund of the purchase price (or of the cost of repair). The Agreement also precluded Novatel from recovering consequential, incidental, special, or punitive damages.

Pursuant to the Agreement, Dowty shipped multiplexers to Novatel, submitted invoices to Novatel, and repeatedly demanded payment from Novatel. Novatel refused to pay, and alleged that Dowty was late in shipping the units and that the units Dowty did ship did not function as promised. Dowty has denied those allegations.

Dowty filed the instant diversity action in the United States District Court for the District of Maryland for recovery of monies due on account and for breach of contract. ¹ Dowty sought actual damages of $434,247. Novatel filed an answer denying liability and asserted counterclaims for fraud and breach of contract, seeking $2,000,000 in actual damages and $3,000,000 in punitive and exemplary damages. ² The parties engaged in extensive discovery, including the production of more than 100,000 documents and the taking of seventeen depositions comprising twenty-seven volumes of testimony.

On July 27, 1992, Dowty filed a motion for partial summary judgment and a supporting memorandum, along with a request for a hearing. Attached to the memorandum was an affidavit from Dowty's local attorney and several exhibits, most of which were not properly authenticated. Dowty's motion sought an order granting summary judgment in its favor on Novatel's claims insofar as those claims sought relief other than the remedies expressly provided for in the parties' Agreement, namely, repair or replacement of the multiplexer products or a refund of their purchase price. Dowty's memorandum in support of its motion also alleged that Novatel lacked sufficient evidence to establish the essential elements of its fraud claim. Therefore, Dowty requested partial summary judgment as to Novatel's contract claim and full summary judgment as to the fraud claim.

Novatel requested and obtained several extensions to respond to Dowty's summary judgment motion. On September 18, more than seven weeks after Dowty's motion had been filed, Novatel filed its memorandum in opposition. Novatel attached no affidavits, deposition excerpts, answers to interrogatories, admissions on file, or authenticated documents. Only an unauthenticated eleven-page chart, which was entitled "DCP9500 Systems Failure Analysis" and which was apparently generated during the course of the litigation, was attached to Novatel's memorandum. The memorandum neither challenged the admissibility of the evidentiary materials that Dowty had attached to its motion nor argued that Dowty had failed to shift the burden of production to Novatel. Rather, it attempted to address Dowty's motion on the merits.

On September 29, 1992, Dowty submitted a reply memorandum in which it argued that Novatel had failed to meet its burden of production under Rule 56 of the Federal Rules of Civil Procedure. Novatel did not submit any further briefing or evidence in opposition to Dowty's summary judgment motion, nor did it seek leave to do so.

On October 19, 1992, without holding a hearing, the district court filed a memorandum opinion and order granting Dowty's motion for partial summary judgment. Dowty Communications Inc. v. Novatel Computer Sys. Corp., 817 F.Supp. 581, 582-92 (D. Md.1992). Novatel filed a motion to reconsider and to permit Novatel to supplement the record with an accompanying affidavit of Daniel D. Pearlson, Novatel's president and chief executive officer. The district court denied Novatel's motion. Id. at 592-96. Subsequently, the court entered final judgment disposing of all claims in the case. Novatel filed a timely notice of appeal.

II

In its fraud claim, Novatel alleged that Dowty had fraudulently induced it to purchase equipment by making several misrepresentations. ³ Novatel claimed that (1) Dowty knew that those representations were false when it made them; (2) Dowty continued to make such false representations in order to secure Novatel's order; (3) Novatel would not have entered into the Agreement if Dowty had not made the misrepresentations; and (4) as a direct result, Novatel was "ruined."

Dowty moved for summary judgment, asserting that Novatel could produce no evidence (let alone the requisite "clear and convincing evidence") to establish the essential element of intent to defraud. Dowty's memorandum in support of the motion challenged Novatel to "come forward with specific evidence that shows that, at the time any of the alleged representations [about the quality or characteristics of its products] were made, Dowty did not intend to produce equipment conforming to those representations." In response, Novatel failed to produce any such evidence, and also failed to present any argument that it was not required to do so. Not surprisingly, Dowty's reply memorandum highlighted those failures.

The district court dismissed Novatel's fraudulent-misrepresentation claim on the ground that it was not supported by sufficient evidence to create a genuine issue of material fact. See 817 F.Supp. at 590-92. The court concluded that Novatel had

neither produced nor alluded to any factual support for its allegations concerning the representations supposedly made by Dowty. While it would not have been difficult for Novatel to attach an affidavit or deposition of its President outlining his version of the contractual negotiations, this Court, in the absence of such a minimal showing, will not attempt to infer what representations, if any, were actually made.

Id. at 591.

On its motion for reconsideration and again on appeal, Novatel has claimed that the district court misunderstood, and therefore misapplied, the Supreme Court's seminal summary judgment decision in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Specifically, Novatel has argued that Dowty was required to support its summary judgment motion with evidence tending to negate Novatel's fraud claim; when Dowty failed to submit such evidence, Novatel was excused from its burden of producing any contrary evidence. ⁴

Novatel has gotten the holding of Celotex precisely backwards. Indeed, Novatel's understanding of the Rule 56 standard for summary judgment is virtually indistinguishable from that of the D.C. Circuit in Celotex--which the Supreme Court squarely rejected. See Celotex, 477 U.S. at 319-28, 106 S.Ct. at 2550-55, rev'g Catrett v. Johns-Manville Sales Corp., 756 F.2d 181, 184-85 (D.C.Cir.1985).

In Celotex, the district court had entered summary judgment for the defendant. The D.C. Circuit reversed because the defendant had failed to support its motion for summary judgment with evidence tending to negate the plaintiff's claim. The Supreme Court reversed, upholding the district court's entry of summary judgment:

Under Rule 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In our view, the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. In such a situation, there can be "no genuine issue as to any...